Exhibit 10.7
GUARANTY
This GUARANTY (as amended, restated, supplemented, or otherwise
modified and in effect from time to time, this "Guaranty") is made as of this
___ day of _____, 2007 (this "Guaranty"), jointly and severally, by
[_____________] (f/k/a Sonterra Resources Inc.), a Delaware corporation
("Sonterra"; Sonterra, together with each other person or entity who becomes a
party to this Guaranty by execution of a joinder in the form of Exhibit A
attached hereto, is referred to individually as a "Guarantor" and collectively
as the "Guarantors"; provided, that the parties hereto agree that, as of the
date hereof, Sonterra is the only Guarantor) in favor of VIKING ASSET MANAGEMENT
L.L.C., a California limited liability company in its capacity as collateral
agent (together with its successors and assigns in such capacity, the
"Collateral Agent") for the benefit of Buyer (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, Sonterra, The Longview Fund, L.P., a California limited
partnership ("Buyer") and certain officers of Sonterra are parties to that
certain Amended and Restated Securities Purchase Agreement, dated effective as
of July 9, 2007 (as amended, restated, supplemented, or otherwise modified from
time to time, the "Purchase Agreement"), pursuant to which Buyer purchased (i)
333 shares (the "New Sonterra Shares") of common stock, no par value, of
Sonterra ("Sonterra Common Stock"); for an aggregate amount of $9,990, which
shares constitute 100% of the issued and outstanding Capital Stock of Sonterra,
and (ii) a senior secured note of Sonterra in the initial principal amount of
$322,500 (the "Deposit Note");
WHEREAS, contemporaneously with the execution and delivery of that
certain Securities Exchange and Additional Note Purchase Agreement, dated as of
August 3, 2007 (the "Exchange Agreement"), between River Capital Group, Inc., a
Delaware corporation (the "Company") and Buyer), the transactions contemplated
by the Purchase Agreement to occur at the Equity Closing (as defined in the
Purchase Agreement) and the transactions contemplated by the Cinco Purchase
Agreement were consummated; without limiting the foregoing, pursuant to the
Purchase Agreement, Buyer purchased from Sonterra a senior secured note of
Sonterra in the initial principal amount of $5,990,010 (of which $322,500
represents refinancing of the Deposit Note, which is now being surrendered to
Sonterra) (as amended, restated, supplemented, or otherwise modified from time
to time, the "Sonterra Equity Note") and a warrant to purchase 50 shares of
Sonterra Common Stock (as amended, restated, supplemented, or otherwise modified
from time to time, the "Sonterra Warrants");
WHEREAS, at the Flash Acquisition Closing (as defined in the Purchase
Agreement), the transactions contemplated by the Purchase Agreement to occur at
the Flash Acquisition Closing and the transactions contemplated by the Flash
Purchase Agreement were consummated subject to the terms and conditions of the
Purchase Agreement; without limiting the foregoing, pursuant to the Purchase
Agreement, at the Flash Acquisition Closing Buyer purchased an additional senior
secured note of Sonterra in the initial principal amount of $2,000,000 (as
amended, restated, supplemented, or otherwise modified from time to time, the
"Sonterra Non-Equity Note");
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WHEREAS, at the Exchange Closing, subject to the terms and conditions
thereof, Buyer (i) is exchanging all of its Sonterra Common Stock and the
Sonterra Equity Note for common stock of the Company, par value $0.001 per share
(the common stock of the Company being referred to herein as "RCGI Common
Stock"; and any shares thereof being referred to herein as "RCGI Common Shares")
(the RCGI Common Shares received by Buyer in such exchange being referred to as
the "New RCGI Common Shares"), (ii) is exchanging the Sonterra Warrant for a
warrant (such warrant, together with any warrants or other securities issued in
exchange or substitution therefor or replacement thereof, and as any of the same
may be amended or modified and in effect from time to time, the "RCGI Warrant")
to purchase RCGI Common Shares (subject to adjustment to reflect the Reverse
Stock Split and any other stock split, stock dividend, stock combination or
similar transaction after the date thereof) (the "Warrant Shares"), which RCGI
Warrant shall have a term of five years and be exercisable into the Warrant
Shares at a price per Warrant Share (the "Warrant Exercise Price") equal to 110%
of the quotient of $6,000,000 divided by the number of New RCGI Common Shares
issued to Buyer at the Exchange Closing; [and (iii) is exchanging the Sonterra
Non-Equity Note, if issued, for a senior secured note of the Company in an
initial principal amount equal to the principal amount owing under the Sonterra
Non-Equity Note on the Exchange Closing Date (such note, together with any
promissory notes or other securities issued in exchange or substitution therefor
or replacement thereof, and as any of the same may be amended or modified from
time to time, the "Initial RCGI Note");]
WHEREAS, subject to the terms and conditions set forth in the Exchange
Agreement, during the Additional Note Issuance Period (as defined therein), the
Company will have the option to sell, and if the Company exercises such option
Buyer shall be obligated to purchase, additional senior secured notes (including
any promissory notes or other securities issued in exchange or substitution for
such senior secured notes or replacement thereof, and as any of the same may be
amended, restated, modified or supplemented and in effect from time to time, the
"Additional RCGI Notes"; and, collectively with any Initial RCGI Note, the
"Notes"), each with a maturity date of August 31, 2010, in an original aggregate
principal amount of up to the result of $10,000,000 minus the original principal
amount of the Initial RCGI Note;
WHEREAS, pursuant to a Pledge Agreement of even date herewith (as the
same may be amended, restated, supplemented or otherwise modified and in effect
from time to time, the "Company Pledge Agreement") by the Company in favor of
the Collateral Agent, the Company has pledged a lien on and security interest in
all of the issued and outstanding Capital Stock of Sonterra;
WHEREAS, pursuant to a Security Agreement dated as of July 9, 2007, as
amended by a First Amendment to Security Agreement of even date herewith (as the
same may be amended, restated, supplemented or otherwise modified and in effect
from time to time, the "Security Agreement") between the Guarantor as "Debtor"
(as defined therein and the Collateral Agent named therein, such Debtor has
granted the Collateral Agent, for the benefit of Buyer, a first priority
security interest in, lien upon and pledge of its rights in the Collateral (as
defined in the Security Agreement); and
WHEREAS, the Guarantor is a direct subsidiary of the Company and, as
such, will derive substantial benefit and advantage from the loans and other
financial accommodations available to the Company set forth in the Exchange
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Agreement, the Notes and the other Transaction Documents, and it will be to the
Guarantor's direct interest and economic benefit to assist the Company in
procuring said Loans and other financial accommodations from Buyer.
NOW, THEREFORE, for and in consideration of the premises and in order
to induce Buyer to make the Loans, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each Guarantor hereby jointly and severally agrees as follows:
1. Definitions: Capitalized terms used herein without definition
and defined in the Exchange Agreement are used herein as defined therein. In
addition, as used herein:
"Bankruptcy Code" shall mean the Federal Bankruptcy Reform Act
of 1978 (11 U.S.C. ss.101, et seq.), as amended and in effect from time to time
thereunder.
"Obligations" shall mean (i) all obligations, liabilities and
indebtedness of every nature of the Company from time to time owed or owing to
the Buyer and Collateral Agent, including, without limitation, all obligations,
liabilities and indebtedness of every nature of the Company under the Security
Documents, the Exchange Agreement, the Notes, the Loans, the Warrants, the
Registration Rights Agreement and the other Transaction Documents, including,
without limitation, the principal amount of all debts, claims and indebtedness,
accrued and unpaid interest and all fees, taxes, indemnities, costs and
expenses, whether primary, secondary, direct, contingent, fixed or otherwise,
heretofore, now and/or from time to time hereafter owing, due or payable whether
before or after the filing of a bankruptcy, insolvency or similar proceeding
under applicable federal, state, foreign or other law and whether or not an
allowed claim in any such proceeding, and (ii) all obligations, liabilities and
indebtedness of every nature of any subsequent Guarantor from time to time owed
or owing to Buyer and/or Collateral Agent, including, without limitation, all
obligations, liabilities and indebtedness of every nature of the Guarantors
under or in respect of this Guaranty, the Pledge Agreement, the Security
Agreement, the Exchange Agreement, the Notes, the Loans, the Warrants, the
Registration Rights Agreement, the other Security Documents and the other
Transaction Documents, as the case may be, including, without limitation, the
principal amount of all debts, claims and indebtedness, accrued and unpaid
interest and all fees, taxes, indemnities, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable whether before or after the filing
of a bankruptcy, insolvency or similar proceeding under applicable federal,
state, foreign or other law and whether or not an allowed claim in any such
proceeding.
2. Guaranty of Payment.
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(a) Each Guarantor, jointly and severally, hereby
unconditionally and irrevocably guaranties the full and prompt payment and
performance to Buyer and Collateral Agent, on behalf of itself and in its
capacity as agent for the benefit of Buyer, when due upon demand, at maturity or
by reason of acceleration or otherwise and at all times thereafter, of any and
all of the Obligations.
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(b) Each Guarantor acknowledges that valuable
consideration supports this Guaranty, including, without limitation, the
consideration set forth in the recitals above, as well as any commitment to
lend, extension of credit or other financial accommodation, whether heretofore
or hereafter made by Buyer to the Company; any extension, renewal or replacement
of any of the Obligations; any forbearance with respect to any of the
Obligations or otherwise; any cancellation of an existing guaranty; any purchase
of any of the Company's assets by Buyer or Collateral Agent; or any other
valuable consideration.
(c) Each Guarantor agrees that all payments under this
Guaranty shall be made in United States currency and in the same manner as
provided for the Obligations.
(d) Notwithstanding any provision of this Guaranty to the
contrary, it is intended that this Guaranty, and any interests, liens and
security interests granted by Guarantors as security for this Guaranty, not
constitute a "Fraudulent Conveyance" (as defined below) in the event that this
Guaranty or such interest is subject to the Bankruptcy Code or any applicable
fraudulent conveyance or fraudulent transfer law or similar law of any state.
Consequently, Guarantors, Collateral Agent and Buyer agree that if this
Guaranty, or any such interests, liens or security interests securing this
Guaranty, would, but for the application of this sentence, constitute a
Fraudulent Conveyance, this Guaranty and each such lien and security interest
shall be valid and enforceable only to the maximum extent that would not cause
this Guaranty or such interest, lien or security interest to constitute a
Fraudulent Conveyance, and this Guaranty shall automatically be deemed to have
been amended accordingly at all relevant times. For purposes hereof, "Fraudulent
Conveyance" means a fraudulent conveyance under Section 548 of the Bankruptcy
Code or a fraudulent conveyance or fraudulent transfer under the provisions of
any applicable fraudulent conveyance or fraudulent transfer law or similar law
of any state, as in effect from time to time.
3. Costs and Expenses. Each Guarantor, jointly and severally,
agrees to pay on demand, all costs and expenses of every kind incurred by Buyer
or Collateral Agent: (a) in enforcing this Guaranty, (b) in collecting any of
the Obligations from the Company or any Guarantor, (c) in realizing upon or
protecting or preserving any collateral for this Guaranty or for payment of any
of the Obligations, and (d) in connection with any amendment of, modification
to, waiver or forbearance granted under, or enforcement or administration of any
Transaction Document or for any other purpose in connection with any Transaction
Document, in each case, to the extent Buyer or Collateral Agent may take such
action pursuant to the terms and conditions of this Agreement. "Costs and
expenses" as used in the preceding sentence shall include, without limitation,
reasonable attorneys' fees incurred by Buyer or Collateral Agent in retaining
legal counsel for advice, suit, appeal, any insolvency or other proceedings
under the Bankruptcy Code or otherwise, or for any purpose specified in the
preceding sentence.
4. Nature of Guaranty: Continuing, Absolute and Unconditional.
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(a) This Guaranty is and is intended to be a continuing
guaranty of payment of the Obligations, and not of collectibility, and is and is
intended to be independent of and in addition to any other guaranty,
indorsement, collateral or other agreement held by Buyer or Collateral Agent
therefor or with respect thereto, whether or not furnished by a Guarantor. None
of Buyer and Collateral Agent shall be required to prosecute collection,
enforcement or other remedies against Company, any other Guarantor or guarantor
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of the Obligations or any other person or entity, or to enforce or resort to any
of the Collateral or other rights or remedies pertaining thereto, before calling
on a Guarantor for payment. The obligations of each Guarantor to repay the
Obligations hereunder shall be unconditional. Each Guarantor shall have no right
of subrogation with respect to any payments made by any Guarantor hereunder
until the termination of this Guaranty in accordance with Section 8 below, and
hereby waives any benefit of, and any right to participate in, any security or
collateral given to Buyer to secure payment of the Obligations, and each
Guarantor agrees that it will not take any action to enforce any obligations of
the Company to such Guarantor prior to the Obligations being finally paid in
full in cash, provided that, in the event of the bankruptcy or insolvency of the
Company, to the extent the Obligations have not been finally paid in full in
cash, Collateral Agent, for the benefit of itself and Buyer, and Buyer shall be
entitled notwithstanding the foregoing, to file in the name of any Guarantor or
in its own name a claim for any and all indebtedness owing to a Guarantor by the
Company (exclusive of this Guaranty), vote such claim and to apply the proceeds
of any such claim to the Obligations.
(b) For the further security of Buyer and without in any
way diminishing the liability of the Guarantors, following the occurrence of an
Event of Default, all debts and liabilities, present or future of the Company to
the Guarantors and all monies received from the Company or for its account by
the Guarantors in respect thereof shall be received in trust for Buyer and
Collateral Agent and promptly following receipt shall be paid over to Collateral
Agent, for its benefit and in its capacity as collateral agent for the benefit
of Buyer, until all of the Obligations have been paid in full in cash.
(c) This Guaranty shall not be changed or affected by any
representation, oral agreement, act or thing whatsoever, except as herein
provided. This Guaranty is intended by the Guarantors to be the final, complete
and exclusive expression of the guaranty agreement between the Guarantors and
Buyer. No modification or amendment of any provision of this Guaranty shall be
effective against any party hereto unless in writing and signed by a duly
authorized officer of such party.
(d) Each Guarantor hereby releases the Company from all,
and agrees not to assert or enforce (whether by or in a legal or equitable
proceeding or otherwise) any "claims" (as defined in Section 101(5) of the
Bankruptcy Code), whether arising under any law, ordinance, rule, regulation,
order, policy or other requirement of any domestic or foreign government or any
instrumentality or agency thereof, having jurisdiction over the conduct of its
business or assets or otherwise, to which the Guarantors are or would at any
time be entitled by virtue of its obligations hereunder, any payment made
pursuant hereto or the exercise by Buyer or Collateral Agent of its rights with
respect to the Collateral, including any such claims to which such Guarantors
may be entitled as a result of any right of subrogation, exoneration or
reimbursement.
5. Certain Rights and Obligations.
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(a) Each Guarantor acknowledges and agrees that Buyer and
Collateral Agent, for its benefit and as collateral agent for the benefit of
Buyer, may, without notice, demand or any reservation of rights against such
Guarantor and without affecting such Guarantor's obligations hereunder, from
time to time:
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(i) renew, extend, increase, accelerate or
otherwise change the time for payment of, the terms of or the interest on the
Obligations or any part thereof or grant other indulgences to the Company or
others;
(ii) accept from any person or entity and hold
collateral for the payment of the Obligations or any part thereof, and modify,
exchange, enforce or refrain from enforcing, or release, compromise, settle,
waive, subordinate or surrender, with or without consideration, such collateral
or any part thereof;
(iii) accept and hold any indorsement or guaranty
of payment of the Obligations or any part thereof, and discharge, release or
substitute any such obligation of any such indorser or guarantor, or discharge,
release or compromise any Guarantor, or any other person or entity who has given
any security interest in any collateral as security for the payment of the
Obligations or any part thereof, or any other person or entity in any way
obligated to pay the Obligations or any part thereof, and enforce or refrain
from enforcing, or compromise or modify, the terms of any obligation of any such
indorser, guarantor, or person or entity;
(iv) dispose of any and all collateral securing
the Obligations in any commercially reasonable manner (to the extent required
under applicable law) as the Collateral Agent, in its reasonable discretion may
consider appropriate and direct the order or manner of such disposition and the
enforcement of any and all endorsements and guaranties relating to the
Obligations or any part thereof as Collateral Agent in its sole discretion may
determine;
(v) subject to the terms of the Notes, determine
the manner, amount and time of application of payments and credits, if any, to
be made on all or any part of any component or components of the Obligations
(whether principal, interest, fees, costs, and expenses, or otherwise),
including, without limitation, the application of payments received from any
source to the payment of indebtedness other than the Obligations even though
Buyer might lawfully have elected to apply such payments to the Obligations or
to amounts which are not covered by this Guaranty; and
(vi) take advantage or refrain from taking
advantage of any security or accept or make or refrain from accepting or making
any compositions or arrangements when and in such manner as Collateral Agent, in
its sole discretion, may deem appropriate;
and generally do or refrain from doing any act or thing which might otherwise,
at law or in equity, release the liability of such Guarantor as a guarantor or
surety in whole or in part, and in no case shall Buyer or Collateral Agent be
responsible or shall any Guarantor be released either in whole or in part for
any act or omission in connection with Buyer or Collateral Agent having sold any
security at less than its value; provided any such sale was conducted in a
commercially reasonable manner (to the extent required under applicable law).
(b) Following the occurrence and during the continuance
of an Event of Default, and upon demand by Collateral Agent, each Guarantor,
jointly and severally, hereby agrees to pay the Obligations to the extent
hereinafter provided and to the extent unpaid:
(i) without deduction by reason of any setoff,
defense (other than payment) or counterclaim of the Company or any other
Guarantor;
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(ii) without requiring presentment, protest or
notice of nonpayment or notice of default to any Guarantor, to the Company or to
any other person or entity;
(iii) without demand for payment or proof of such
demand or filing of claims with a court in the event of receivership, bankruptcy
or reorganization of the Company or any other Guarantor;
(iv) without requiring Buyer or Collateral Agent
to resort first to the Company (this being a guaranty of payment and not of
collection), to any other Guarantor, or to any other guaranty or any collateral
which Buyer or Collateral Agent may hold;
(v) without requiring notice of acceptance
hereof or assent hereto by Buyer or Collateral Agent; and
(vi) without requiring notice that any of the
Obligations has been incurred, extended or continued or of the reliance by Buyer
or Collateral Agent upon this Guaranty;
all of which each Guarantor hereby waives.
(c) Each Guarantor's obligation hereunder shall not be
affected by any of the following, all of which such Guarantor hereby waives:
(i) any failure to perfect or continue the
perfection of any security interest in or other lien on any collateral securing
payment of any of the Obligations or any Guarantor's obligation hereunder;
(ii) the invalidity, unenforceability, propriety
of manner of enforcement of, or loss or change in priority of any document or
any such security interest or other lien or guaranty of the Obligations;
(iii) any failure to protect, preserve or insure
any such collateral;
(iv) failure of a Guarantor to receive notice of
any intended disposition of such collateral;
(v) any defense arising by reason of the
cessation from any cause whatsoever of liability of the Company including,
without limitation, any failure, negligence or omission by Buyer or Collateral
Agent in enforcing its claims against the Company;
(vi) any release, settlement or compromise of any
obligation of the Company, any other Guarantor or any other guarantor of the
Obligations;
(vii) the invalidity or unenforceability of any of
the Obligations;
(viii) any change of ownership of the Company, any
other Guarantor or any other guarantor of the Obligations or the insolvency,
bankruptcy or any other change in the legal status of the Company, any other
Guarantor or any other guarantor of the Obligations;
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(ix) any change in, or the imposition of, any
law, decree, regulation or other governmental act which does or might impair,
delay or in any way affect the validity, enforceability or the payment when due
of the Obligations;
(x) the existence of any claim, setoff or other
rights which the Guarantor, Company, any other Guarantor or guarantor of the
Obligations or any other person or entity may have at any time against Buyer,
Collateral Agent or the Company in connection herewith or any unrelated
transaction;
(xi) Buyer's or Collateral Agent's election in
any case instituted under chapter 11 of the Bankruptcy Code, of the application
of section 1111(b)(2) of the Bankruptcy Code;
(xii) any use of cash collateral, or grant of a
security interest by the Company, as debtor in possession, under sections 363 or
364 of the Bankruptcy Code;
(xiii) the disallowance of all or any portion of
any of Buyer's or Collateral Agent's claims for repayment of the Obligations
under sections 502 or 506 of the Bankruptcy Code;
(xiv) any stay or extension of time for payment by
the Company or any other Guarantor resulting from any proceeding under the
Bankruptcy Code or any similar law; or
(xv) any other fact or circumstance which might
otherwise constitute grounds at law or equity for the discharge or release of a
Guarantor from its obligations hereunder, all whether or not such Guarantor
shall have had notice or knowledge of any act or omission referred to in the
foregoing clauses (i) through (xiv) of this Section 5(c).
6. Representations and Warranties. Each Guarantor further
represents and warrants to Buyer and Collateral Agent that: (a) such Guarantor
is a corporation or other entity duly incorporated or organized, as applicable,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or formation, as applicable, and has full power, authority and
legal right to own its property and assets and to transact the business in which
it is presently engaged; (b) such Guarantor has full power, authority and legal
right to execute and deliver, and to perform its obligations under, this
Guaranty, and has taken all necessary action to authorize the guarantee
hereunder on the terms and conditions of this Guaranty and to authorize the
execution, delivery and performance of this Guaranty; (c) this Guaranty has been
duly executed and delivered by such Guarantor and constitutes a legal, valid and
binding obligation of such Guarantor enforceable against such Guarantor in
accordance with its terms, except to the extent that such enforceability is
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance and moratorium laws and other laws of general application affecting
enforcement of creditors' rights generally, or the availability of equitable
remedies, which are subject to the discretion of the court before which an
action may be brought; and (d) the execution, delivery and performance by each
Guarantor of this Guaranty do not require any action by or in respect of, or
filing with, any governmental body, agency or official and do not violate,
conflict with or cause a breach or a default under any provision of (i)
applicable law or regulation, (ii) the organizational documents of any
Guarantor, (iii) any judgment, injunction, order, decree or other instrument
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binding upon it, or (iv) any agreement binding upon it, to the extent, solely
with respect to this clause (iv), such violation could not reasonably be
expected to have a Material Adverse Effect.
7. Negative Covenants. Each Guarantor covenants with Buyer and
Collateral Agent that such Guarantor shall not grant any security interest in or
permit any lien, claim or encumbrance upon any of its assets in favor of any
person or entity other than liens and security interests in favor of Buyer and
Collateral Agent and Permitted Liens.
8. Termination. This Guaranty shall not terminate until such
time, if any, as (i) all Indebtedness under the Notes secured hereby shall be
finally paid in full in cash, (ii) no Notes shall remain outstanding, (iii) all
commitments to lend under the Exchange Agreement (including, without limitation,
any and all commitments of Buyer to purchase Additional Notes) shall have
terminated and (iv) there shall exist no other outstanding payment or
reimbursement obligations (other than contingent indemnification obligations for
which no claims shall have been asserted) of the Borrower or the Guarantors to
the Collateral Agent under any of the Transaction Documents. Thereafter, but
subject to the following, Collateral Agent, on its behalf and as agent for
Buyer, shall take such action and execute such documents as the Guarantors may
request (and at the Guarantors' cost and expense) in order to evidence the
termination of this Guaranty. Each Guarantor further agrees that, to the extent
that the Company makes a payment or payments to Buyer or Collateral Agent on the
Obligations, or Buyer or Collateral Agent receive any proceeds of collateral
securing the Obligations or any other payments with respect to the Obligations,
which payment or receipt of proceeds or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be returned or repaid to the Company, its estate, trustee, receiver, debtor in
possession or any other person or entity, including, without limitation, the
Guarantors, under any insolvency or bankruptcy law, state or federal law, common
law or equitable cause, then to the extent of such payment, return or repayment,
the obligation or part thereof which has been paid, reduced or satisfied by such
amount shall be reinstated and continued in full force and effect as of the date
when such initial payment, reduction or satisfaction occurred, and this Guaranty
shall continue in full force notwithstanding any contrary action which may have
been taken by Buyer or Collateral Agent in reliance upon such payment, and any
such contrary action so taken shall be without prejudice to Buyer's or
Collateral Agent's rights under this Guaranty and shall be deemed to have been
conditioned upon such payment having become final.
9. Guaranty of Performance. Each Guarantor also guaranties the
full, prompt and unconditional performance of all obligations and agreements of
every kind owed or hereafter to be owed by the Company to Buyer and Collateral
Agent under the Exchange Agreement, Registration Rights Agreement, the Warrants,
Security Documents and the Notes. Every provision for the benefit of Buyer and
Collateral Agent contained in this Guaranty shall apply to the guaranty of
performance given in this paragraph.
10. Assumption of Liens and Obligations. To the extent that a
Guarantor has received or shall hereafter receive distributions or transfers
from the Company of property or cash that are subject, at the time of such
contribution, to liens and security interests in favor of Buyer and/or the
Collateral Agent in accordance with the Notes, the Security Agreement or any
other Security Document, such Guarantor hereby expressly agrees that (i) it
shall hold such assets subject to such liens and security interests, and (ii) it
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shall be liable for the payment of the Obligations secured thereby. Each
Guarantor's obligations under this Section 10 shall be in addition to its
obligations as set forth in other sections of this Guaranty and not in
substitution therefor or in lieu thereof.
11. Miscellaneous.
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(a) The terms "Company" and "Guarantor" as used in this
Guaranty shall include: (i) any successor individual or individuals,
association, partnership, limited liability company or corporation to which all
or substantially all of the business or assets of the Company or such Guarantor
shall have been transferred and (ii) any other association, partnership, limited
liability company, corporation or entity into or with which the Company or such
Guarantor shall have been merged, consolidated, reorganized, or absorbed.
(b) Without limiting any other right of Buyer or
Collateral Agent, whenever Buyer or Collateral Agent has the right to declare
any of the Obligations to be immediately due and payable (whether or not it has
been so declared), Collateral Agent, on its behalf and in its capacity as agent
for the benefit of Buyer, at its sole election without notice to the undersigned
may appropriate and set off against the Obligations:
(i) any and all indebtedness or other moneys due
or to become due to any Guarantor by Buyer or Collateral Agent in any capacity;
and
(ii) any credits or other property belonging to
any Guarantor (including all account balances, whether provisional or final and
whether or not collected or available) at any time held by or coming into the
possession of Buyer or Collateral Agent, or any affiliate of Buyer or Collateral
Agent, whether for deposit or otherwise;
whether or not the Obligations or the obligation to pay such moneys owed by
Buyer or Collateral Agent is then due, and Buyer or Collateral Agent shall be
deemed to have exercised such right of set off immediately at the time of such
election even though any charge therefor is made or entered on Buyer's or
Collateral Agent's records subsequent thereto. Collateral Agent agrees to notify
such Guarantor in a reasonably practicable time of any such set-off; however,
failure to so notify such Guarantor shall not affect the validity of any
set-off.
(c) No course of dealing between the Company or any
Guarantor and Buyer or Collateral Agent and no act, delay or omission by Buyer
or Collateral Agent in exercising any right or remedy hereunder or with respect
to any of the Obligations shall operate as a waiver thereof or of any other
right or remedy, and no single or partial exercise thereof shall preclude any
other or further exercise thereof or the exercise of any other right or remedy.
Buyer or Collateral Agent may remedy any default by the Company under any
agreement with the Company or with respect to any of the Obligations in any
reasonable manner without waiving the default remedied and without waiving any
other prior or subsequent default by the Company. All rights and remedies of
Buyer and Collateral Agent hereunder are cumulative.
(d) This Guaranty shall inure to the benefit of the
parties hereto and their respective successors and assigns.
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(e) Collateral Agent may assign its rights hereunder
without the consent of Guarantors, in which event such assignee shall be deemed
to be Collateral Agent hereunder with respect to such assigned rights; provided
such assignment shall not relieve the Collateral Agent of any liability it may
have to the Guarantor.
(f) Captions of the sections of this Guaranty are solely
for the convenience of the parties hereto, and are not an aid in the
interpretation of this Guaranty and do not constitute part of the agreement of
the parties set forth herein.
(g) If any provision of this Guaranty is unenforceable in
whole or in part for any reason, the remaining provisions shall continue to be
effective.
(h) All questions concerning the construction, validity,
enforcement and interpretation of this Guaranty shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. Each Guarantor hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each Guarantor hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. The parties hereto acknowledge that
Buyer has executed each of the Transaction Documents to be executed by it in the
State of New York.
(i) Notices. All notices, approvals, requests, demands
and other communications hereunder shall be delivered or made in the manner set
forth in, and shall be effective in accordance with the terms of, the Exchange
Agreement or, in the case of communications to the Collateral Agent, directed to
the notice address set forth in the Security Agreement; provided, that any
communication shall be effective as to any Guarantor if made or sent to the
Company in accordance with the foregoing.
12. WAIVERS.
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(a) EACH GUARANTOR WAIVES THE BENEFIT OF ALL VALUATION,
APPRAISAL AND EXEMPTION LAWS.
(b) UPON THE OCCURRENCE OF A DEFAULT OR EVENT OF DEFAULT,
EACH GUARANTOR HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR
TO THE EXERCISE BY BUYER OR COLLATERAL AGENT, ON ITS BEHALF AND IN ITS CAPACITY
AS AGENT FOR THE BENEFIT OF BUYER, OF ITS RIGHTS TO REPOSSESS THE COLLATERAL
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WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL
WITHOUT PRIOR NOTICE OR HEARING. EACH GUARANTOR ACKNOWLEDGES THAT IT HAS BEEN
ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS
GUARANTY.
(c) EACH GUARANTOR WAIVES ITS RIGHTS TO A TRIAL BY JURY
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
GUARANTY, OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY BUYER OR COLLATERAL AGENT. EACH
GUARANTOR AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH GUARANTOR
FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE
OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY
PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.
13. Collateral Agent. The terms and provisions of Section 5.12 of
the Security Agreement which set forth the appointment of the Collateral Agent
and the indemnifications by Buyer to which the Collateral Agent is entitled are
hereby incorporated by reference herein as if fully set forth therein.
14. Payments Free of Taxes.
----------------------
(a) Definitions. In this Section 14:
(i) "Excluded Taxes" means, with respect to the
Collateral Agent or Buyer, or any other recipient of any payment to be made by
or on account of any obligations of any Guarantor under this Guaranty, or under
any other Security Document, income or franchise taxes imposed on (or measured
by) its net income by the United States of America or such other jurisdiction
under the laws of which such recipient is organized or in which its principal
office is located.
(ii) "Governmental Authority" means the
government of the United States of America or any other nation, or any political
subdivision thereof, whether state or local, or any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government over the Company or any of its
Subsidiaries, or any of their respective properties, assets or undertakings.
(iii) "Indemnified Taxes" means Taxes other than
Excluded Taxes.
(iv) "Taxes" means any and all present or future
taxes, levies, imposts, duties, deductions, charges or withholdings imposed by
any Governmental Authority.
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(b) Any and all payments by or on account of any
obligation of any of the Guarantors under this Guaranty or any other Security
Document shall be made without any set-off, counterclaim or deduction and free
and clear of and without deduction for any Indemnified Taxes; provided that if
any Guarantor shall be required to deduct any Indemnified Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 14(b)), the Collateral Agent or Buyer, as
applicable, receives an amount equal to the sum it would have received had no
such deductions been made, (ii) such Guarantor shall make such deductions and
(iii) such Guarantor shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(c) Indemnification by the Guarantors. Each Guarantor
shall indemnify the Collateral Agent and Buyer, within ten (10) days after
written demand therefor, for the full amount of any Indemnified Taxes paid by
the Collateral Agent or Buyer, as applicable, on or with respect to any payment
by or on account of any obligation of such Guarantor under this Guaranty and the
other Security Documents (including Indemnified Taxes or imposed or asserted on
or attributable to amounts payable under this Section 14) and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate of the Collateral
Agent or Buyer as to the amount of such payment or liability under this Section
14 shall be delivered to such Guarantor and shall be conclusive absent manifest
error.
15. Counterparts; Headings. This Agreement may be executed in two
or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to each other party; provided that a facsimile, .pdf or
similar electronically transmitted signature shall be considered due execution
and shall be binding upon the signatory thereto with the same force and effect
as if the signature were an original signature. The headings in this Agreement
are for convenience of reference only and shall not alter or otherwise affect
the meaning hereof.
[rest of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, Guarantors have executed this Guaranty as of the date first
written above.
GUARANTOR:
SONTERRA RESOURCES INC., a Delaware
corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
EXHIBIT A
Form of Joinder
Joinder to Guaranty
The undersigned, [__________] a [__________], hereby joins in the
execution of that certain Guaranty dated as of _______ __, 2007 (the
"Guaranty"), by each of SONTERRA RESOURCES INC., a Delaware corporation, and
each other person or entity that becomes a Guarantor thereunder after the date
and pursuant to the terms thereof, to and in favor of Viking Asset Management
L.L.C., a California limited liability company, as collateral agent. By
executing this Joinder, the undersigned hereby agrees that it is a Guarantor
thereunder with the same force and effect as if originally named therein as a
Guarantor. The undersigned agrees to be bound by all of the terms and provisions
of the Guaranty and represents and warrants that the representations and
warranties set forth in Section 6 of the Guaranty are, with respect to the
undersigned, true and correct as of the date hereof. Each reference to a
Guarantor in the Guaranty shall be deemed to include the undersigned.
In Witness Whereof, the undersigned has executed this Joinder this ___
day of _________, 200_.
____________________________________
